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The New Deal

Supreme Court Cases

A.L.A. Schechter Poultry Corp. v. United States

295 U. S. 495

May 27, 1935

(Opinion of the Court)

HUGHES, C. J. Petitioners were convicted in the District Court of the United States
for the Eastern District of New York on eighteen counts of an indictment charging
violations of what is known as the "Live Poultry Code,” and on an additional count
for conspiracy to commit such violations. By demurrer to the indictment and appropriate
motions on the trial, the defendants contended (1) that the Code had been adopted
pursuant to an unconstitutional delegation by Congress of legislative power; (2) that
it attempted to regulate intrastate transactions which lay outside the authority of
Congress; and (3) that in certain provisions it was repugnant to the due process clause
of the Fifth Amendment.

The defendants are slaughterhouse operators….A.L.A. Schechter Poultry Corporation
and Schechter Live Poultry Market are corporations conducting wholesale poultry slaughterhouse
markets in Brooklyn, New York City.

Defendants ordinarily purchase their live poultry from commission men at the West
Washington Market in New York City or at the railroad terminals serving the City,
but occasionally they purchase from commission men in Philadelphia. They buy the
poultry for slaughter and resale. After the poultry is trucked to their slaughterhouse
markets in Brooklyn, it is there sold, usually within twenty-four hours, to retail
poultry dealers and butchers who sell directly to consumers. The poultry purchased
from defendants is immediately slaughtered, prior to delivery, by shochtim in defendants'
employ. Defendants do not sell poultry in interstate commerce.

The "Live Poultry Code” was promulgated under section 3 of the National Industrial
Recovery Act. That section authorizes the President to approve "codes of fair competition.”
Such a code may be approved for a trade or industry, upon application by one or more
trade or industrial associations or groups, if the President finds (1) that such associations
or groups "impose no inequitable restrictions on admission to membership therein and
are truly representative,” and (2) that such codes are not designed "to promote monopolies
or to eliminate or oppress small enterprises and will not operate to discriminate
against them, and will tend to effectuate the policy” of Title I of the act. Such
codes "shall not permit monopolies or monopolistic practices.” As a condition of
his approval, the President may "impose such conditions (including requirements for
the making of reports and the keeping of accounts) for the protection of consumers,
competitors, employees, and others, and in furtherance of the public interest, and
may provide such exceptions to and exemptions from the provisions of such code as
the President in his discretion deems necessary to effectuate the policy herein declared.”
Where such a code has not been approved, the President may prescribe one, either on
his own motion or on complaint. Violation of any provision of a code (so approved
or prescribed) "in any transaction in or affecting interstate or foreign commerce”
is made a misdemeanor punishable by a fine of not more than $500 for each offense,
and each day the violation continues is to be deemed a separate offense.

The declared purpose is "To effect the policies of title I of the National Industrial
Recovery Act.” The Code is established as "a code for fair competition for the live
poultry industry of the metropolitan area in and about the City of New York.” That
area is described as embracing the five boroughs of New York City, the counties of
Rockland, Westchester, Nassau and Suffolk in the State of New York, the counties of
Hudson and Bergen in the State of New Jersey, and the county of Fairfield in the State
of Connecticut.

The "industry” is defined as including "every person engaged in the business of selling,
purchasing for resale, transporting, or handling and/or slaughtering live poultry,
from the time such poultry comes into the New York metropolitan area to the time it
is first sold in slaughtered form,” and such "related branches” as may from time to
time be included by amendment. Employers are styled "members of the industry,” and
the term employee is defined to embrace "any and all persons engaged in the industry,
however compensated,” except "members.”

The Code fixes the number of hours for work-days. It provides that no employee, with
certain exceptions, shall be permitted to work in excess of forty (40) hours in any
one week, and that no employee, save as stated, "shall be paid in any pay period less
than at the rate of fifty (50) cents per hour.” The article containing "general labor
provisions” prohibits the employment of any person under sixteen years of age, and
declares that employees shall have the right of "collective bargaining,” and freedom
of choice with respect to labor organizations, in the terms of section 7 (a) of the
Act. The minimum number of employees, who shall be employed by slaughterhouse operators,
is fixed, the number being graduated according to the average volume of weekly sales.

The seventh article, containing "trade practice provisions,” prohibits various practices
which are said to constitute "unfair methods of competition.”

Of the eighteen counts of the indictment upon which the defendants were convicted,
aside from the count for conspiracy, two counts charged violation of the minimum wage
and maximum hour provisions of the Code, and ten counts were for violation of the
requirement (found in the "trade practice provisions”) of "straight killing.” The
charges in the ten counts, respectively, were that the defendants in selling to retail
dealers and butchers had permitted "selections of individual chickens taken from particular
coops and half coops.”

Of the other six counts, one charged the sale to a butcher of an unfit chicken; two
counts charged the making of sales without having the poultry inspected or approved
in accordance with regulations or ordinances of the City of New York; two counts charged
the making of false reports or the failure to make reports relating to the range of
daily prices and volume of sales for certain periods; and the remaining count was
for sales to slaughterers or dealers who were without licenses required by the ordinances
and regulations of the City of New York.

Two preliminary points are stressed by the government with respect to the appropriate
approach to the important questions presented. We are told that the provision of
the statute authorizing the adoption of codes must be viewed in the light of the grave
national crisis with which Congress was confronted. Undoubtedly, the conditions to
which power is addressed are always to be considered when the exercise of power is
challenged. Extraordinary conditions may call for extraordinary remedies. But the
argument necessarily stops short of an attempt to justify action which lies outside
the sphere of constitutional authority. Extraordinary conditions do not create or
enlarge constitutional power. The Constitution established a national government
with powers deemed to be adequate, as they have proved to be both in war and peace,
but these powers of the national government are limited by the constitutional grants.
Those who act under these grants are not at liberty to transcend the imposed limits
because they believe that more or different power is necessary. Such assertions of
extra-constitutional authority were anticipated and precluded by the explicit terms
of the Tenth Amendment -- ”The powers not delegated to the United States by the Constitution,
nor prohibited it to the States, are reserved to the States respectively, or to the
people.”

The further point is urged that the national crisis demanded a broad and intensive
cooperative effort by those engaged in trade and industry, and that this necessary
cooperation was sought to be fostered by permitting them to initiate the adoption
of codes. But the statutory plan is not simply one for voluntary effort. It does
not seek merely to endow voluntary trade or industrial associations or groups with
privileges or immunities. It involves the coercive exercise of the lawmaking power.
The codes of fair competition, which the statute attempts to authorize, are codes
of laws. If valid, they place all persons within their reach under the obligation
of positive law, binding equally those who assent and those who do not assent. Violations
of the provisions of the codes are punishable as crimes.

[A] The question of the delegation of legislative power

For a statement of the authorized objectives and content of the "codes of fair competition”
we are referred repeatedly to the "Declaration of Policy” in section one of Title
I of the Recovery Act. Thus, the approval of a code by the President is conditioned
on his finding that it "will tend to effectuate the policy of this title.” Sec. 3
(a). The President is authorized to impose such conditions "for the protection of
consumers, competitors, employees, and others, and in furtherance of the public interest,
and may provide such exceptions to and exemptions from the provisions of such code
as the President in his discretion deems necessary to effectuate the policy herein
declared.” Id. The "policy herein declared” is manifestly that set forth in section one. That declaration
embraces a broad range of objectives. Among them we find the elimination of "unfair
competitive practices.”

……

We think the conclusion is inescapable that the authority sought to be conferred by
section 3 was not merely to deal with "unfair competitive practices” which offend
against existing law, and could be the subject of judicial condemnation without further
legislation, or to create administrative machinery for the application of established
principles of law to particular instances of violation. Rather, the purpose is clearly
disclosed to authorize new and controlling prohibitions through codes of laws which
would embrace what the formulators would propose, and what the President would approve,
or prescribe, as wise and beneficent measures for the government of trades and industries
in order to bring about their rehabilitation, correction and development, according
to the general declaration of policy in section one. Codes of laws of this sort are
styled "codes of fair competition.”

We find no real controversy upon this point and we must determine the validity of
the Code in question in this aspect.

The question, then, turns upon the authority which section 3 of the Recovery Act vests
in the President to approve or prescribe. If the codes have standing as penal statutes,
this must be due to the effect of the executive action. But Congress cannot delegate
legislative power to the President to exercise an unfettered discretion to make whatever
laws he thinks may be needed or advisable for the rehabilitation and expansion of
trade or industry.

Accordingly we turn to the Recovery Act to ascertain what limits have been set to
the exercise of the President's discretion. First, the President, as a condition of approval, is required to find that the trade or
industrial associations or groups which propose a code, "impose no inequitable restrictions
on admission to membership” and are "truly representative.” That condition, however,
relates only to the status of the initiators of the new laws and not to the permissible
scope of such laws. Second, the President is required to find that the code is not "designed to promote monopolies
or to eliminate or oppress small enterprises and will not operate to discriminate
against them.” And, to this is added a proviso that the code "shall not permit monopolies
or monopolistic practices.” But these restrictions leave virtually untouched the
field of policy envisaged by section one, and, in that wide field of legislative possibilities,
the proponents of a code, refraining from monopolistic designs, may roam at will and
the President may approve or disapprove their proposals as he may see fit.

Nor is the breadth of the President's discretion left to the necessary implications
of this limited requirement as to his findings. As already noted, the President in
approving a code may impose his own conditions, adding to or taking from what is proposed,
as "in his discretion” he thinks necessary "to effectuate the policy” declared by
the Act. Of course, he has no less liberty when he prescribes a code of his own motion
or on complaint, and he is free to prescribe one if a code has not been approved.
The Act provides for the creation by the President of administrative agencies to assist
him, but the action or reports of such agencies, or of his other assistants -- their
recommendations and findings in relation to the making of codes -- have no sanction
beyond the will of the President, who may accept, modify or reject them as he pleases.
Such recommendations or findings in no way limit the authority which section 3 undertakes
to vest in the President with no other conditions than those there specified. And
this authority relates to a host of different trades and industries, thus extending
the President's discretion to all the varieties of laws which he may deem to be beneficial
in dealing with the vast array of commercial and industrial activities throughout
the country.

Such a sweeping delegation of legislative powerfinds no support in the decisions upon
which the government especially relies.

To summarize and conclude upon this point: Section 3 of the Recovery Act is without
precedent. It supplies no standards for any trade, industry or activity. It does
not undertake to prescribe rules of conduct to be applied to particular states of
fact determined by appropriate administrative procedure. Instead of prescribing rules
of conduct, it authorizes the making of codes to prescribe them. For that legislative
undertaking, section 3 sets up no standards, aside from the statement of the general
aims of rehabilitation, correction and expansion described in section one. In view
of the scope of that broad declaration, and of the nature of the few restrictions
that are imposed, the discretion of the President in approving or prescribing codes,
and thus enacting laws for the government of trade and industry throughout the country,
is virtually unfettered. We think that the code-making authority thus conferred is
an unconstitutional delegation of legislative power.

[B] The question of the application of the provisions of the Live Poultry Code to
intrastate transactions

This aspect of the case presents the question whether the particular provisions of
the Live Poultry Code, which the defendants were convicted for violating and for having
conspired to violate, were within the regulating power of Congress.

These provisions relate to the hours and wages of those employed by defendants in
their slaughterhouses in Brooklyn and to the sales there made to retail dealers and
butchers.

(1) Were these transactions "in” interstate commerce? Much is made of the fact that almost all the poultry coming
to New York is sent there from other States. But the code provisions, as here applied,
do not concern the transportation of the poultry from other States to New York, or
the transactions of the commission men or others to whom it is consigned, or the sales
made by such consignees to defendants. When defendants had made their purchases,
whether at the West Washington Market in New York City or at the railroad terminals
serving the City, or elsewhere, the poultry was trucked to their slaughterhouses in
Brooklyn for local disposition. The interstate transactions in relation to that poultry
then ended. Defendants held the poultry at their slaughterhouse markets for slaughter
and local sale to retail dealers and butchers who in turn sold directly to consumers.
Neither the slaughtering nor the sales by defendants were transactions in interstate
commerce.

The undisputed facts thus afford no warrant for the argument that the poultry handled
by defendants at their slaughterhouse markets was in a "current” or "flow” of interstate commerce and was thus subject to congressional regulation. The mere
fact that there may be a constant flow of commodities into a State does not mean that
the flow continues after the property has arrived and has become commingled with the
mass of property within the State and is there held solely for local disposition and
use. So far as the poultry here in question is concerned, the flow in interstate
commerce had ceased. The poultry had come to a permanent rest within the State.
It was not held, used, or sold by defendants in relation to any further transactions
in interstate commerce and was not destined for transportation to other states. Hence,
decisions which deal with a stream of interstate commerce -- where goods come to rest
within a State temporarily and are later to go forward in interstate commerce -- and
with the regulations of transactions involved in that practical continuity of movement,
are not applicable here.

(2) Did the defendants' transactions directly "affect” interstate commerce so as to be subject to federal regulation? The power of Congress
extends not only to the regulation of transactions which are part of interstate commerce,
but to the protection of that commerce from injury.

In determining how far the federal government may go in controlling intrastate transactions
upon the ground that they "affect” interstate commerce, there is a necessary and well-established
distinction between direct and indirect effects. The precise line can be drawn only
as individual cases arise, but the distinction is clear in principle. Direct effects
are illustrated by the railroad cases we have cited, as e. g., the effect of failure to use prescribed safety appliances on railroads which are
the highways of both interstate and intrastate commerce, injury to an employee engaged
in interstate transportation by the negligence of an employee engaged in an intrastate
movement, the fixing of rates for intrastate transportation which unjustly discriminate
against interstate commerce. But where the effect of intrastate transactions upon
interstate commerce is merely indirect, such transactions remain within the domain
of state power. If the commerce clause were construed to reach all enterprises and
transactions which could be said to have an indirect effect upon interstate commerce,
the federal authority would embrace practically all the activities of the people and
the authority of the State over its domestic concerns would exist only by sufferance
of the federal government. Indeed, on such a theory, even the development of the
State's commercial facilities would be subject to federal control.

The distinction between direct and indirect effects has been clearly recognized in
the application of the Anti-Trust Act. Where a combination or conspiracy is formed,
with the intent to restrain interstate commerce or to monopolize any part of it, the
violation of the statute is clear. But where that intent is absent, and the objectives
are limited to intrastate activities, the fact that there may be an indirect effect
upon interstate commerce does not subject the parties to the federal statute, notwithstanding
its broad provisions.

While these decisions related to the application of the federal statute, and not to
its constitutional validity, the distinction between direct and indirect effects of
intrastate transactions upon interstate commerce must be recognized as a fundamental
one, essential to the maintenance of our constitutional system. Otherwise as we have
said, there would be virtually no limit to the federal power and for all practical
purposes we should have a completely centralized government. We must consider the
provisions here in question in the light of this distinction.

The question of chief importance relates to the provisions of the Code as to the hours
and wages of those employed in defendants' slaughterhouse markets. It is plain that
these requirements are imposed in order to govern the details of defendants' management
of their local business. The persons employed in slaughtering and selling in local
trade are not employed in interstate commerce. Their hours and wages have no direct
relation to interstate commerce. The question of how many hours these employees should
work and what they should be paid differs in no essential respect from similar questions
in other local businesses which handle commodities brought into a State and there
dealt in as a part of its internal commerce. This appears from an examination of
the considerations urged by the government with respect to conditions in the poultry
trade. Thus, the government argues that hours and wages affect prices; that slaughterhouse
men sell at a small margin above operating costs; that labor represents 50 to 60 percent
of these costs; that a slaughterhouse operator paying lower wages or reducing his
cost by exacting long hours of work, translates his saving into lower prices; that
this results in demands for a cheaper grade of goods; and that the cutting of prices
brings about demoralization of the price structure. Similar conditions may be adduced
in relation to other businesses. The argument of the government proves too much.
If the federal government may determine the wages and hours of employees in the internal
commerce of a State, because of their relation to cost and prices and their indirect
effect upon interstate commerce, it would seem that a similar control might be exerted
over other elements of cost, also affecting prices, such as the number of employees,
rents, advertising, methods of doing business, etc. All the processes of production
and distribution that enter into cost could likewise be controlled. If the cost of
doing an intrastate business is in itself the permitted object of federal control,
the extent of the regulation of cost would be a question of discretion and not of
power.

The government also makes the point that efforts to enact state legislation establishing
high labor standards have been impededby the belief that unless similar action is
taken generally, commerce will be diverted from the States adopting such standards,
and that this fear of diversion has led to demands for federal legislation on the
subject of wages and hours. The apparent implication is that the federal authority
under the commerce clause should be deemed to extend to the establishment of rules
to govern wages and hours in intrastate trade and industry generally throughout the
country, thus overriding the authority of the States to deal with domestic problems
arising from labor conditions in their internal commerce.

It is not the province of the Court to consider the economic advantages or disadvantages
of such a centralized system. It is sufficient to say that the Federal Constitution
does not provide for it. Our growth and development have called for wide use of the
commerce power of the federal government in its control over the expanded activities
of interstate commerce, and in protecting that commerce from burdens, interferences,
and conspiracies to restrain and monopolize it. But the authority of the federal
government may not be pushed to such an extreme as to destroy the distinction, which
the commerce clause itself establishes, between commerce "among the several States”
and the internal concerns of a State. The same answer must be made to the contention
that is based upon the serious economic situation which led to the passage of the
Recovery Act -- the fall in prices, the decline in wages and employment, and the curtailment
of the market for commodities. Stress is laid upon the great importance of maintaining
wage distributions which would provide the necessary stimulus in starting "the cumulative
forces making for expanding commercial activity.” Without in any way disparaging
this motive, it is enough to say that the recuperative efforts of the federal government
must be made in a manner consistent with the authority granted by the Constitution.

We are of the opinion that the attempt through the provisions of the Code to fix the
hours and wages of employees of defendants in their intrastate business was not a
valid exercise of federal power.

On both the grounds we have discussed, the attempted delegation of legislative power,
and the attempted regulation of intrastate transactions which affect interstate commerce
only indirectly, we hold the code provisions here in question to be invalid and that
the judgment of conviction must be reversed.